Experts say the production of Oil and Gas will not recover until after the end of the year

Euro

The Euro delivered a shooting star candlestick on Friday—a bearish reversal indicator. So did the pound and a few others. The CAD and Swiss franc were a hanging man. All these patterns point to a continuation of the bearish move, implying risk-off in a general way despite the supposedly good news about the war. The Mexican peso showed a dollar bullish hammer. 

Does that mean traders did not find the good news credible? Yes, probably—and rightly so. One inch under the surface were the usual confusing contradictions and obvious outright lies.

Opposing these candlestick indicators was the 10-year yield delivering an engulfing bear candlestick, meaning the downmove in yields that started at the end of March is on-going with more vigor. Falling yields “should” drag down the dollar, the opposite of what the other bars are indicating. Yields down, price up, meaning investors are demanding the notes even at a lesser yield. And finally, the dollar index was another open gap down and a hanging man, which is the exact opposite of what it “should” given all the other candlesticks saying sell those names.

This is a perfect storm of contradictions on a candlestick basis. Two things: when this happens, it means something Big is brewing. If it’s the war that rules, the risk-off diagnosis is the right one. The probability of full-bore war starting up again is high enough to drive the dollar up on the overall risk-off feeling. Second, as a practical matter, when in doubt, aim for the crosses. See the euro/yen chart, seemingly about to fall off the cliff. As a footnote, is it possible Mr. Bessent is manipulating the 10-year? Nobody knows or if they know, they are not telling.

So far yesterday we had the currencies starting on a big opening gap down, but then recovering. See the 60-minute insert on the euro chart.

Outlook

In the real world, data continues to arrive. Tomorrow we get US retail sales. Wednesday brings UK PPI and CPI. Thursday has German and eurozone PMI’s. Friday it’s the IFO and US consumer sentiment.

In the background and beating a steady beat of doom, experts say the production of oil and gas will not recover until after the end of the year. See the Reuters chart. This ensures higher inflation everywhere.

In the UK, PM Starmer appears clueless and weak, and faces getting shoved out the door by his own party. We don’t know how to evaluate his position. If we believe Starmer, he was not told that the Epstein-polluted Mandelson had failed his security tests while preparing to become ambassador to the US. He fired the Foreign Office guy who kept the information from him but that guy has a legal basis for not reporting the fail. Two things: too big a preference for bureaucracy and golly, the US went a convicted felon as ambassador to France (Trump’s son-in-law’s father).

Trump’s nominee for the Fed top job starts hearings this week. The press wants to make a big deal out of it. Warsh faces the Senate Finance Committee starting tomorrow and is expected to be grilled on his ideas for reforming the Fed. Economists want to hear what he has to say.

The war still dominates. Trump has to back down—TACO—to get Iran back to the table. Markets think this is what will happen—oil still below $100. Trump has been told his all-out bombing campaign is a war crime under the Geneva Convention. He doesn’t care about laws, treaties or decency, but he doesn’t want to be impeached a third time. There’s also the issue of the US military possibly refusing to obey illegal orders. We have zero information on that score. Meanwhile, VP Vance is headed to Islamabad while apparently the Iranians are sulking at home. Neither party has credibility and neither is trusted by the other, and justifiably so. 

Forecast

More things can go wrong than can go right in the current stand-off. Trump must back down, to avoid being charged with a war crime by attacking civilian infrastructure (assuming the military would obey the orders). More than one market sees a high probability of that today.

It’s horrifying to think that the global economy and US national security depend on the incompetent, erratic Trump. So far the only blowback from Iran is a bunch of AI-generated cartoons making fun of him and America generally. Retaliation could be a lot worse.

At a guess, the dollar will hesitate, jump, retreat, and jump again over the next few days. In the end, those hanging man candlesticks point to currencies down, dollar up, nearly all on risk aversion arising from Trump’s awful performance. But don’t best the ranch. If and when Trump TACO’s, the dollar can collapse again in a relief rally. Do not trust relief rallies, either: tigers and stripes. If a solution is found (Trump named it a “transaction”) this time, there will be a next time.